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Bega Cheese (ASX:BGA) with a big buy

Daily Market Update (43)

ASX rally slows, Origin Energy (ASX:ORG) confirms outlook, Bega Cheese (ASX:BGA) with a big buy, ASX to open lower

The ASX 200 (ASX:XJO) end its winning streak following the weaker economic news from the US, the market falling 0.7% on Thursday as traders seemed to be tiring. 

It was those sectors and companies that have performed strongest in November giving back recent gains, the Commonwealth Bank (ASX:CBA) falling 1.6% pushing the sector 1.4% lower. 

The energy sector also fell by 1.0% with signs that global trade may be slowing. 

Vertically integrated electricity retailer Origin Energy (ASX:ORG) was the standout with shares heading 1.1% higher after management released a trading update. 

CEO Frank Calabria upgraded guidance for gas production, expecting 4% higher than before, backed by stronger export demand from Asia at higher prices than domestic gas sales. 

Management noted that their cash flow breakeven price of oil is US$25-29, placing them in the money at current prices. 

The company also announced its continued push into lower emission energy sources, outlining plans for a hydrogen export project. 

ORG looks to be offering a more diversified entry point for the energy sector with most direct oil exposures having run quite hard already. 

Bega Cheese (ASX:BGA) going big, capital expenditure falls

Bega Cheese has announced a sizeable takeover, entering a binding agreement to purchase all of Lion Dairy & Drinks for $534 million. 

This compares to BGA’s current market capitalisation of just over $1 billion. 

The acquisition will be funded by a combination of new debt facilities and a $401 million capital raising priced at $4.60 per share, a 10% discount to the share price. 

The acquisition sees a change in direction for the company, combining the traditional spreads, dairy and cheese business with a more diversified Lion that spans juice, milk and other non-alcoholic products. As they say, ‘go big or go home’. 

Management are seeking to build a ‘truly great food company’ and see synergies in the diverse production and supply chains but most importantly, a more efficient distribution strategy. 

Revenue is expected to reach $3 billion once the deal is completed and will be immediately earnings accretive. 

Australian capital expenditure on buildings and equipment contracted double that expected, falling 3% in the September quarter which is now down some 13.8% on the previous year, however the weakness should be offset by the strong retail spending numbers when GDP is released next week.

US markets closed, weaker European lead as virus cases surge, AstraZeneca (LON:AZN) to increase trial

With the US market closed for Thanksgiving there is little in the way of direction overnight. 

Markets were still digesting the weaker than expected economic data that showed a spike in unemployment claims but were somewhat buoyed by the Fed’s comments around their QE program. 

European markets were flat but in the midst of their strongest month on record, with additional UK and German restrictions hitting confidence and sending the oil price lower. 

Investors are once again growing concerned about the Brexit outcome with the vaccine now seemingly under control.  

The result will be some profit taking in Australian energy and travel names when the market opens today, expect healthcare names to outperform.

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